In the past few weeks, data on second-quarter real gross domestic products have been released (table). Only South Korea and Taiwan posted growth weaker than analysts had projected.
In general, these Asian economies were powered by rising electronics exports and highly accommodative fiscal and monetary policies. Capital-spending trends were mixed, but other factors helped individual countries. Hong Kong, for example, benefited from a surge in tourism from mainland China, Indonesia experienced less of a drag from a drawdown in inventories, and Singapore saw a gain in exports from its biomedical industry.
The region, however, faces a more difficult second half, especially if domestic demand from businesses doesn't kick in. Slowdowns in the U.S. and Europe, coupled with the continued problems in Japan, mean that demand for computers, consumer electronics, and semiconductors will not continue to grow at double-digit rates. Already, July factory output in Taiwan fell more than 1%, as the output of information-processing gear and electronics plunged.
In addition, some countries will face fiscal difficulties. One reason Korea's GDP data fell short of expectations is that the government suddenly stopped funding building projects. Foreign investors are growing worried about the deficit in the Philippines, where the red ink in just the first seven months of the year has exceeded the government's estimate for all of 2002.
Another concern is social unrest and corruption, which could destabilize governments. With the world approaching the first anniversary of the September 11 attacks in the U.S., clashes between religious groups may pick up in the region. Such unrest could make investors nervous and more likely to pull money out of Asia just as capital spending will be needed to offset slower export growth. By James C. Cooper & Kathleen Madigan